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It is now $199 a year, $19 a month. I have a discount. You can get it for $150 a year. I think if you go to newcomer.co right now. | Oh, there you go. Get it for $150. And what is that like? You do two a week, three a week? How many drops is it? |
Yeah, so it's a I've got like a weekly like podcast out that I just relaunched that comes out once a week. And then I tend to publish once a week myself. And now I have like, like I just literally, while we were preparing for this published a data post that we're starting to put out once a month. Right. So it's sort of, it's, it's a mix, you know, it's not like sort of a morning brew thing where you're getting like an aggregation, like I'm doing reporting. And so then when I've got a scoop, I publish it. When I have an interview, I publish it. But the podcast comes out Tuesday mornings. | fascinating. I think it's a good place to start here in our discussions, a lot of news going on, and we'll get to your latest scoop. But it is really interesting how independent journalists are becoming sustainable. let me just ask it outright. Without saying your salary, but the the compensation you had at the information Bloomberg as you were working up as a journalist, versus running your own company similar, more less, plus or minus 10%. Where does it wind up? |
I'm at two years, six months. Definitely a year out, I was making more than I was at Bloomberg. Now it's becoming a business to the level I think some people in media discount. I've hired a chief of staff. I mean, if you think about my business right now, I have like three revenue lines basically, right? I have subscription, which for the first two years was all my revenue. And so that's some, some people pay, you know, one 50 year and then a small, I raised the price recently. Um, so you can sort of do the math. I have like 2,300. So that's like 400, you know, top line basically from subscription revenue. And now I'm doing sponsorships. I just had Vanta sponsor my podcast. He sponsored seven episodes. I won't say how much they paid, but you can sort of do math on that. And then I'm doing this Cerebral Valley AI conference March 30th. And that's going to be huge. I mean, that's going to be, I said in the journals, that's like more than a third of my revenue for this year. | So it's fantastic. So you could hit a million dollars in year three or so of doing this possibly. |
I think, I think that'll happen. | fantastic. Congratulations. Awesome. Feels good. |
The big question is busy, you know, it's, I'm like, ready to, yeah, well, it does change your mindset, right? | From being an employee and being like, blah, blah, blah, you know, union leader employee, we need to fight management. I don't think you were that, but you did see that with your compatriots, this like anti management, and you're the owner, right? And now you're like, Oh, my God, running a business is hard. How does that change? If it does at all? how you look at the people you're covering, who are business creators, because now you're a business creator. And does it change how you look at businesses in some way? And business leaders? |
Yeah, I mean, I think there's a lot on just sort of, I don't know how a company company operates and like focus. I mean, I think one thing that's funny to me is just, you know, I think as a reporter, I would look at all this sort of self-help leadership type advice and sort of laugh at it. Yeah. Especially for like business leaders, because it was like, you know, shouldn't you be worried about like, you know, I don't know, complex financial advice rather than just like how to maximize your schedule. But now that I'm like running a business on my own and just like very busy, it's like, Oh, actually like the optimization of like my time and my own ability, like output work is actually like probably the most important lever in my business overall. And so then I have much more appreciation for a while. Why you just sort of go back to the fundamentals of like, Oh, how do I, how do I make sure I'm as productive as I, as I need to be in all that? Um, so I have more empathy for that. | You have more empathy too. Yeah. That's good. I think this is going to I think the substack podcast revolution is call it independent journalists, because some of them are using other platforms, Patreon, this existed before substack. And they're competing nicely, I think. And then there's people who are now creating SAS based solutions. that are maybe not the 10% that Substack takes. Substack takes 10% plus the 3% credit card or the 3% is blended into the 10. |
No, Substack takes 10%. | And then yeah, Stripe facilitates the actual payments and takes like, yeah, so yeah, so when you start getting to big numbers right now, 40k, or whatever, 50k, you know, four or $5,000 for your hosting companies, not outrageous. But you hit a million, you start thinking 100k. Maybe you start look at other options. |
But a lot of my, like I'm saying, a lot of the revenue is conference and then sponsorships. I would say, I mean, right now I think Substack is super worth the money. I mean, they draw, I mean, you, you set up a Substack, right? I mean, I think the recommendation feature is driving a lot of growth for me still. Oh, the recommendations are working. | Yeah. And that's why the free list is you know i have more than 50 000 free subscribers and that's that's the crazy thing is i think they figured out the referral system and so i've been getting all these free which you know if you just use a generic mail provider you're not getting that and then i looked at and i was like i have a bunch of lists that are infrequent founder university has a list, the accelerator has a list, the fund has a list, the podcast has a list, I have a personal list, and we really don't use them that often, maybe once every couple of months. So we're paying some sass fee to manage those, which is fine, but they're infrequent use. It's not like we're some retailers, I don't wanna say spamming, but blasting all the time about discount codes. So I was like, wait, it's free to use substack. you're not charging. And yeah, I'm getting free subscribers. So it's just a no brainer. Just park them over there. I had them parked at review to on Twitter. And that was great. But I guess they're deprecating it. So you know, I like the idea of like the Twitter bio having the one click. That was a really cool innovation. But that went away. I just like the idea that you can get some free subs. Um, but yeah, if they keep it to 10%, it's a low enough take rate that I think they're going to balance like, Oh, I'm getting free subscribers and some convert the referral system. You might just be like, you know what? That's a, that's a fine VIG to pay. All right. It's definitely good. |
Well, just the last thing I'll say, I mean, you know, the anchlor and then also Barry Weiss have started to build publications on them. I'd be interested to know what the, if the take rate's the same on those, because... Oh, if they negotiated a different rate? Because if you start building an actual business, I feel like the dynamics must be different, but I'm not sure. | mean, it's pretty portable. So I think the the point at which you're going to have to think about this, and maybe Casey has to think about this Newton, right, Casey Newton. Yeah. So some of those folks when they hit a million, if they have 5000 10,000 subs, which you'll hit at some point, I think when you hit a million dollars, and you're paying 100,000 10,000 a month, you start thinking, I could hire somebody at full time and use some of these other platforms. And maybe that makes more sense. And I think that's why Sam Harris was on Patreon for a while, he moved off of it. And he didn't have to pay the VIG and he didn't have to worry about having somebody turn him off. Although Substack seems pretty committed to freedom of speech. In fact, they might be a little Yeah. This Week in Startups is supported by First Republic Bank. Tomorrow's innovators need funding today, and no one knows that better than private equity and venture capital firms. First Republic bankers understand the fast-paced nature of your business and are ready to quickly and efficiently meet your firm's unique needs through all market cycles. Best of all, you'll be partnered with an experienced banker who will serve as your single point of contact. That means you can reach out directly by phone, email, or First Republic Secure app. When you're too busy to leave the office, they'll even come to you. Experience the difference a true banking partnership can make. Visit firstrepublic.com today to learn more. That's firstrepublic.com. Member FDIC and equal housing lender. |
Mario at The Generalist just moved back to Substack, which was interesting after going off. I mean, ease is something people undervalue. Sometimes it's just like, this works, like worry about the other parts of your business. Yes. That's certainly valuable. | That's where take rate as a, as a general concept, you have to provide more value than you're taking. That's why I think Apple is in crosshairs for people, hey, 30% is too big of a take rate, people are like, this isn't fair. We're not going to offer Spotify, or some epic games for at night, you can't buy stuff, right? You got to go direct to the website to buy it. It's just too large of a take right now. If it was 10%, those people would be like, okay, right? Whereas a small person might be like, you know, calm calm or fitbots, some other apps we've invested in, like you're happy to pay it. Thanks for featuring us once in a while. I do also like subset has an app. I know it's a little controversial, because people can experience your newsletter without the email, I guess. I don't know if that's, I think Casey was the one who pointed that out. Like, I don't want to be bundled. |
It doesn't worry me as much. I mean, I think anything to make the reader experience better. And right now, we're all very dependent on like, Gmail, right? You know, like, Gmail filtering, I don't know, it's, I'm happy for, you know, my readers to be able to find the newsletter, however they want. | I thought the chat was interesting. Did you use the chat feature yet? |
I haven't, you know, with Casey, I am actually in a discord group. | Yes. You know, I joined that as well. I forgot the name of it, but I just didn't like my channel. |
My, my community isn't very active. I would not call it. I think Casey's has been more of a success. Mine. I don't know. I haven't really invested in building the community, but then I didn't, I didn't want to play around with the chat feature. | know, the pro I do I put I turn the chat feature on and it was kind of interesting that dozens of people showed up to say hi. But it was interesting. I think it's got potential like to turn a mailing list into a community is kind of a clever idea. Right? I think that over time, people will like that if there's a purpose. But I think what's going to happen with substack over time is you have the fear of people unsubscribing because the newsletter is not intelligent enough or not insightful enough. that is a fear that I think drives performance. Right? Every time you hit that psyche, right. And I was just reading this, like, business insider, you know, super link beady, obviously. And I was just admonishing a writer over there. I was like, they were dunking on sequoias fun performance. And I was like, Have you not heard of the J curve? Like the I told him, I was like, you look dumb. like, and he's like, Well, I did put in here that these are young funds. I was like, Yeah, but look at the headline, look at the tenor of the story. You're obviously dunking on them and saying, like, Oh, mighty sequoias like doing poorly. I was like, you kind of look dumb. I'll be totally honest, you look uninformed. And you look link baiting. It's not a good look. And it's like, but I guess it gets clicked. So it works. But if you were to do that in an email newsletter, you might have three people on subscribe, paid subscribers, like, Oh, this person is dumb. Speak to that, like you are. |
I'm and I'm not speaking to that story specifically. I mean, it seemed what I'm describing is challenged with their public holdings. I don't know enough about the new phone. | Well, everybody else. Yeah. |
Yeah. Yeah. The But yeah, I mean, I feel like the value of the newsletter is that every piece is delivered to your readers' inboxes as equal to the prior pieces, right? At Bloomberg, it really felt like, even though we had a big audience, stories were sort of fighting for a spot on the homepage or on social to be valuable. Whereas for the newsletter, every piece matters, and therefore, I'm much more apprehensive about sending a piece that feels unusually weak, because everybody's gonna see it and it's gonna be embarrassing. | I think that's a very healthy dynamic. I think this is like, you know, we had a talk on debt count, dead cat bounce, which is the previous name, just dead cat, the old name. |
Yeah, exactly. | Old name, the dark, dead cat bounce podcast. I mean, that's what you're talking about. The dead cat bounces as a finance. |
That is part of what it references, but it actually references a conversation between Mark Andreessen and Mark Zuckerberg. Oh, where Mark Marc Andreessen text, Marc Andreessen texted. Yeah, no, no, no. It's spycraft. Marc Andreessen texted Zuck and said, the cat's in the bag, the bag's in the river, which is some really like obscure spy reference. And then Zuck replies back. Does that mean the cat's dead? And so we just thought it was funny. It came out in a lawsuit. It has to do with Andreessen helping Zuck get like more founder control over Facebook. | And so yeah, that was dead cat. I felt like that was either. like Mark Andreessen's finest moment or worse. I couldn't figure it out. I was like, wow, this dude is really on the side of founders. He's negotiating against the other board members to covertly coach Mark on how to manipulate totally the comp committee to let him go become a senator or something and still maintain control of the |
company. I just I just love it. You know, I'm all about insiders. And like, Silicon Valley works based on actual human beings. Like, I just have to read Hoffman for my new podcast. And like, that's like a dream. And so I feel like that, that whole Mark Andreessen, Mark Zuckerberg saga, it's just funny to me. It's just like, oh, the people, you know, their machinations are really deciding, you know, who controls like one of the, you know, 10 biggest companies in the world. | Yeah, exactly. I love it. Alright, well, there's a little preamble for you folks. Okay, now, you just published on newcomer.co. Go subscribe, everybody. 150 bucks. You published a scoop. Scoop. On Stripe. So, tell us what's the latest on Stripe. |
Uber was the only one. I think it's got to be top three, at least. For sure, yeah. So yeah, amazing. And it's at a $50 billion valuation down from 96, which had been the peak for Stripe. Cut in half. But this is not money for Stripe to use to run its business. All the money is basically going to be used to help resolve this expiring restricted stock unit problem that Stripe has had. It granted these options. And since Stripe hasn't gone public, some of the options are going to expire for early employees. So they need to help those employees deal with the options, pay the tax bill, The tax bill might be about $3.5 billion, and then the remainder of the $6 billion will mostly be used as an actual tender offer, basically, to buy the shares and let some employees and ex-employees see some money. | So the tender offer means that thrive capital general catalyst a 16 z founders fund who are reportedly participating around they'll buy some shares from those employees, so they'll own some common shares. This is exactly what Masayoshi San did with Uber. bought put in some shares at a very high valuation for preferred, this doesn't seem to be happening here. But or maybe it will. And then also did the secondary. So I'm guessing some percentage of this is at a preferred price. And some of it's buying that secondary. Or the company's buying back the secondary. |
I think, I mean, yeah, some of the details, it's not clear, you know, not yet. I mean, Goldman Sachs and JP Morgan have been sort of steering stripe through this. And some of the Goldman private wealth alliance are also invested. | Well, their revenue has slowed a bit over there. But they're still growing 85% year over year for their net revenue. Well, that was 21 to 22 net revenue grew 85%. But yeah, what what's is it? Are they growing fast? Or are they growing slow? |
Well, I think it's the combination. The information reported that they lost some $500 million last year, which for a company that I think had bragged about how profitable it was, was worrying. The gross revenue grew 27% last year to $14.3 billion. And yeah, I think the year before had grown sort of much more than that. So it was sort of a shocking slowdown. Because obviously, if you're investing at $50 billion for a company that you don't know when it's going to go public, and you're a venture firm, so you want to see big returns, you're hoping for $100, $150 billion company to come out of this. In which case, you need to see continued growth and sort of profitability. And, you know, I think in particular, you know, Adyen is this public company that Stripe gets compared to a lot and Stripe had just let its headcount balloon. And so then if you looked at, you know, revenue to headcount, I think in particular, Stripe looked more challenged. And so they, they cut 14% of the employees in November. Yeah. 4,000 to 8,000 employees from 2021 to 2022. | Right. I mean, that's a lot of headcount to add. And they did the riff, right, cut up 1100 employees. I've been dealing with business insurance for three decades, I am on the board of a bunch of companies, I watch people who don't have insurance, get themselves into trouble all the time. Switching providers has always been a nightmare. It's too expensive takes too much time. And often, it doesn't even guarantee better coverage. But now, you can make switching radically simple with Embroker. Yes, Embroker is the perfect destination for industry-tailored commercial insurance. It's business insurance specifically for startups. Embroker's single application helps startups get four quotes, one, two, three, four, for four lines of coverage in just 15 minutes. They connect you with one of their expert brokers for unmatched service that goes beyond your policy. And listen, Embroker is such an amazing product. I use it. A lot of my startups use it. It's so easy to use. So try Embroker today. with code twist and get 10% off their startup package at imbroker.com slash twist. That's E-M-B-R-O-K-E-R.com slash T-W-I-S-T and use the code twist to get that 10% off. It's meaningful. Every dollar counts right now. We love you, imbroker. Thank you so much for supporting this podcast for so many years. What do you think generally? What's the back channel? I mean, we talked about it a lot on this week, startups and all in about the layoffs. What's the you know, when you kind of, I think straddle as we talked about at the top of the show, say, the maybe antagonistic, anti tech press, the, you know, sub sack insider kind of new state of journalism. Yeah, what is the actual truth to how these layoffs are being perceived by the rank and file in Silicon Valley? Do they understand it? Are they upset about it? What's the are people in a culture of fear now, and scared for their jobs? |
I mean, I feel like, obviously, everybody has a different opinion. I think there are some people that I've seen almost like lampooned for they get laid off and then they still write some tribute to their years there and sort of totally understand it, sort of the capitalist. And then I think you see sort of people who work at Google and come to see it as sort of like a birthright. And then as soon as They have people leave there. It's like, how could they do this? So there's clearly a range of opinions. I mean, personally, yeah, I do think layoffs are part of business. And some of these companies just hired so much that the companies need to be able to lay people off. And there's certainly an was an amount of, you know, entitlement amongst some of these tech employees that they should be able to earn, you know, hundreds of thousands of dollars a year, forever. Yep. I think the Facebook case in particular, which I'm sure, I think you guys have talked about on all in, I mean, it's just, you know, managers, managing managers, managing managers, or whatever. That was Zuckerberg's great quote, right? | Right. And he's like, yeah, this has got to stop. And we're going to consolidate down. And if you want to be a manager, maybe leave. |
Right. And I mean, yeah, I don't think anybody wants to work for a company where managers are managing, you know, it's just like at some point, productive people want to work at companies where they're surrounded by people who feel like they're doing the work. | I might, you know, I've come to the conclusion that it takes two to tango. I think Google created this culture of entitlement, because they had the money printing machine. I think Silicon Valley copied it because they had no choice because it was an arms race. And there was a talent, you know, war going on. And Google explicitly led that talent war by saying, you know what, we'll hire people to let them hang out on the roof and drink in the quad is I know, like in Silicon Valley in Hooli, right? |
Well, we'll hire you for you to give up on your dreams. You see with us, you know, exactly. | That was that was the explicit strategy, Eric, as vocalized to me from the top of the company. And, you know, people other people copied it. But they didn't have the money printing machine. So then that gets you into a bit of a trap. People basically are going really fast. And they just went flying off the cliff. |
Right. And I mean, you can see why people are upset. If they do give up on their dreams, they think they're gonna get this money year after year, you you sort of set a norm, and then people expect it. And, you know, it's a hassle, you're pretty far along on your career to go find another job. | So there's, you know, I wonder what happens to this group of people, let's say who didn't have jobs that were essential. who now find themselves having maybe gotten paid three times what they were getting paid maybe five years earlier, right? So they were working in marketing or sales or PR, let's PM design, let's call it a non highly technical AI developer or top sales executive position where like they're super valuable and coveted even to this day. And they got to 400,000, 500,000 in blended comp between stock and base. And they started their career just five, six years ago at 100. Have they did they hit peak salary compensation for their careers are getting laid off at 3540 years old, right? I mean, that's, that's a possibility. |
Yeah. I mean, hard to know, right? | just think that's and then I think there's two things that are headwinds now for talent. One is everybody insisted on continuing remote work. You know what happens when you insist on remote work and you're highly paid? Your managers learn what your output is, right? because they have to figure out your output because they can't actually see you doing work. They don't see you at a desk. They can't manage by like, policing the prison yard, you know, like walking around the open workspace and making sure you're there early and you stay late, which is how managers kind of manage managers. They would just look at literally the number of cars in the the parking lot and the badge is coming in out. Well, now your managers got to evolve, they got to look at your commits, your code commits, they got to look at your sales, they got to look at what you wrote in your end of day report in Slack, what you said in the stand up, you were going to get done and what you actually got done. And then they put it against something in Canada, or San Paolo, or Singapore. And they're like, wait a second, we have offices around the world. And we're paying people different amounts of money around the world. And I can hire five people for the class of this person. Remote can be helpful to the employee. |
And then AI. Yeah, AI, but remote can be helpful to the employee too. I mean, there's so much wasted time at the office. I agree. I mean, I love Bloomberg, but you just feel productive talking to your colleague, you know, like hearing their problems, whatever, but it didn't necessarily get you anywhere towards work, they would actually like increase Bloomberg's revenues, you know, I mean, so if you cut out some of that, your employees are, I don't know, happier, maybe more productive. | I feel like nobody likes to commute and everybody likes to live in low cost place. I think it just, I think what's happening is we're going through a great reset of salaries and compensation. So this great reset in tech and business and media is, you know, going to be impacted by two major forces remote work, global remote workforces. So I think if you were highly paid in the United States, and lowly play lowly paid in Manila, I'm just thinking of like, the biggest Delta, right? A writer in New York, a writer in Manila, a sales development rep in Manila, a sales development rep in, you know, Los Angeles or New York, or San Francisco. So there's a huge delta in your salary. I think one person's salary goes up massively once comes down modestly or moderate moderately, right. And so that like global price, you want to work at home, we don't care if you're in Hawaii, or you're in Manila. this is what we pay for work. And then when AI starts doing the work, I think that's the other thing. I don't know what your thoughts are now of how much this is applicable, but you and I are writers, right? And like, you ask chat GPT in this nascent version to make you a punch list of what should be on a marketing program. Like you can do in notion now it's built in. And you're like, make me a checklist of what I should do in a marketing plan. And it's like, okay, that's a pretty good starting point. |
Right. Well, you know, I was preparing for my interview with Reid Hoffman, you know, the LinkedIn co founder who just stepped off the opening board. And so I was talking to chat GBT, and like asking him for question advice. I thought, on the one hand, it was a very useful tool to think through things. It knew generally, this is somebody who thinks about blitzscaling. He was at Microsoft. It's smart enough. You could ask the questions and not look like an idiot. On the other hand, I was talking to it. I was trying to tell ChetGBT, have you ever watched Joe Rogan? Or I could have said, have you seen All In? ask straight questions. You know what I mean? Yes. Sometimes you give a rant, and then you ask a question. Sometimes you ask short and sweet. Sometimes you're annoying. You ask a range of different types of questions, and at least I wasn't able to evoke from it the questions that I wanted. Now, I do think some of that is just like there's going to be all this human language engineering of the machines to get out the output you want. You know what I mean? Right. But, but yeah, I, I, I definitely, I think it's going to be very hard to predict which jobs actually get replaced because people want to say, you know, other people's jobs get replaced, not mine. You know, everybody sees, I don't know. It's hard to predict. | Like, uh, this is hilarious while we're talking just to show you the power of like this technology in its most early state, I decided to, uh, type in the doing an interview with the prompt I gave was what question should I ask read Hoffman on a podcast ask questions in the voice of Joe Rogan. All right, folks, we got a legend. We got a legendary Silicon Valley entrepreneur investor in the house today. Correct. He's both read Hoffman. Explanation point read. Great to have you on the show. Pretty nice. Let's start with your journey. You had an incredible career as an entrepreneur investor. Can you walk us through your journey? How you got started and some of the biggest challenges you face along the way? I mean, that's a generic college. |
There's no spice. | Yeah, no spice. But if you were a college kid learning how to do sure, a podcast, they would be like, yeah, asking about their career. You co founded LinkedIn. Okay, getting more specific is now the world's professionalism. What is the original inspiration behind LinkedIn? Pretty good question. Original inspiration question. |
But they're very old. Yeah, yeah. It could Yeah, they're very generic. | The generic today. But if you said, you know, if I think the interesting thing is, you're going to be able to say, those questions are pretty generic, can we get right, something a little more spicy, and it's gonna be like, okay, spice it up. |
I mean, I'm extremely bullish. To be clear, I think this is huge. I mean, it's regular people on the street, I feel like I go to the gym locker room, people are talking about it. You know, like there are lots of things, crypto or whatever, that Silicon Valley gets itself hyped up about that nobody else cares about. This is something, I mean, my fiancee uses it just like it's not, you know, to think about what emails she should send. You know, it's, I think it's already very useful. | I'm trying to figure out what's more shocking, that she does it for email or that you have a fiancee. Hey, welcome to the All In pod. I feel like I could do a pod where I break the chops a little bit. Yeah, my favorite is we've gotten to the point in which and look at these, like this gave me like more questions than it kept going. I didn't ask it to keep going. But it just kept going. Yeah. What advice would you give aspiring entrepreneurs who are just starting out? That's a good one. You're involved in a number of philanthropic endeavors, including black lives matter movement and the fight against climate change. Tell us more about your philanthropic work. |
It's not bad. I think it's very safe. This is where I'm almost with the Elon's of the world or whatever. I feel like I worry that it's just like, I already hate bland corporate speak with humans. I don't want this AI machine to just there's no spice in that. Like what? | Yeah, I just feel like boring. Right. I mean, right. If chat GPT and if Microsoft is making chat GPT safe for that use case, totally understandable. Right. But then again, like, search engines have like, filled with porn and hate speech and every possible corner. So if it is being compared to search, there should be a safe search filter at some point we say, Hey, let this thing rip. I want to ask it. I don't care about safe words, racism, sex, whatever isms. I don't care about filtering this. I don't care if it's off color. Let it make jokes in the style of whoever's the most offensive, right? Like, tell me some offensive jokes. |
Yeah, I, on the one hand, I'm supportive of, you know, more unrestrained. On the other hand, I do just worry and I don't know what the solution is to this. They're very psychologically persuasive, you know, like the whole episode with like, Sydney and being that, you know, Kevin Roose, New York Times. Yeah. Ben Thompson wrote about. Those are smart people. I feel like there's a lot of pull to it. I think we're very close to a situation where people take these chatbots seriously. I mean, that was the whole Lambda encounter with that Google engineer. And so then if you have people interacting with super dark bots, they can be led into dangerous places. I think that's what... | Okay, imagine this. You got an idea for a great tech startup and you think it's going to change the world, but you got a problem. You just don't have the engineers that you need to make it come true. Why? Well, it's obvious. It's hard to find engineers. There's a lot of competition. And hey, you're trying to keep your burn rate low. You need to conserve cash. Now, imagine you had a partner who could provide you with more than 1,000 on-demand developers, right? As many as you need. And these developers were all vetted experience result oriented. And they were incredibly passionate about helping you grow your startup. And what if they charged, you know, competitive rates, things that you could afford? Does this sound too good to be true? Well, let me introduce you to lemon.io startup shoes lemon.io because they only offer handpicked developers with three or more years of experience. and who have strong portfolios. In fact, only 1% of candidates who apply to work with lemon.io get in a couple of our launch founders have worked with lemon.io and they had an amazing experience. And listen, I have used outsourced full time teams for decades, whether it was way back at weblogs, Inc. Mahalo on to inside.com at launch, This is the way to do it. Go to lemon.io slash twist and find your perfect developer or tech team. And you can do that in 48 hours or less and twist listeners get 15% off for the first four weeks. Stop burning money, hire developer smarter, visit lemon.io slash twist. I think what we have to understand is we've passed the Turing test. in many cases, right? And we've crossed the uncanny valley. So the Turing test by Alan Turing in 1950, like if you were to ask, you know, the computer or a human to give you an answer to a question, would you be able to tell the difference? Like, you can't tell the difference here that that just that one I did about the questions, if I asked an intern or a producer to come up with questions, and they came back with that, like, okay, good start. right. You know, you could totally fool me or anybody, unless you had like, unless it makes mistakes, which it seems to do pretty frequently. And the tone passes the uncanny valley, because it did feel like a little bit like Joe Rogan ask without the spice. So a lot of this leads to massive funding. Let's talk a little bit about this deluge of funding. Yeah. And what you're seeing out there. |
Right? I mean, OpenAI is obviously the elephant in the room. OpenAI has an extremely complex structure. It's sort of a nonprofit. It's sort of for profit. Microsoft has a deal with them that we don't totally know. I just say that to say, okay, it's possible. OpenAI is the Facebook of social, but all these venture capitalists know that they didn't get the Facebook of social, and now they're off looking for the social trend. There's a question of which other companies will be able to really make a ton of money off this or be as valuable as OpenAI. I think some of the key contenders right now are other people building large language models. Anthropic, the information out of story that they're raising 700 million dollars in a round led by a spark. I think they said the valuation was like 4.1. So that Anthropic is X, you know, open AI people. So they would be more of a direct competitor. Similarly, I've reported on this company, character AI, which is sort of a mix of building its own large language models. And then also, you know, building these kooky sort of character things, you know. | But there's tons. Making images, yeah. Right, right. So that's really interesting. If you were to look at those first two, these are gonna have overlap already. They're massively funded. There's a limited amount of talent in the space. I hear AI developers go for low single digit millions a year. That's, you know, the good ones, one, two, three, four million a year. That's what you're hearing. Total comp cash in? |
I don't know. That's a good, I should do a story on sort of the individual comp. And I also want to do a story on just like, I feel like there are certain key researchers that make some of these companies are relevant if they have them and not if they don't. So it's definitely, it's like basketball. I mean, it's like a star driven industry. | It is today, Brad Gerstner said on the all in pod last week, when he sat in for free Berg, that yeah, Google was paying somebody 4 million in stock in cash. So that makes sense. If you got a whatever trillion dollar company, give a couple million dollars in equity. And this is the future of the company where you have to protect it from potential, you know, competitors, you got to protect the kingdom. So that's two. And that's, both of them are at, one's at 4 billion, one's at a billion, both of them hundreds of millions of dollars. What else has been invested in? |
Were you, Stability's out there raising around right now. I think it might've been Fortune said they were looking for 4 billion. | Perplexity, that was another one. |
Yeah, that was, I scooped it. NEA. Oh, you did, okay. I scooped it, NEA was doing it. And then I think Insider followed up with some of the details. I mean, there are a ton, you know, I just published like a market map So it depends. You know, there, there are a lot that battery ventures have put together. I mean, basically it depends, you know, they're the big players who are doing the models and then their company, you know, you've probably heard of Jasper, which is sort of sitting on top of some of the models and saying, how can we use the language prompts to really make it useful in particular cases. I think there's a, there are rivals like this company writer. I'm interviewing the Repl.it CEO and Hugging Face CEO at my conference on March 30th. There's so many. Runway is this company that was used in everything, everywhere, all at once. Are you following that? You have you seen that movie? I have seen it. Yeah. Yeah. So like, you know, it was this tiny design team. And they they used runways like video production tools, which is generally AI to build some of this stuff. | Extraordinary. That's wild. Yeah. It does seem to me, we are now going to have 25 well funded competitors in each of these spaces, right? Their products are going to be non differentiated. And it's going to be a race to the bottom in terms of the cost. per API use. So I think this is like the Uber versus Lyft versus DoorDash versus Postmates kind of battle where VCs are now going to be funding these services at below cost, because these things do take a lot of servers. And chat GPT seems to have made their API. They might I read that they made the cost like 10x cheaper. So they are just undercutting the entire market. Somebody is going to make this API just free as part of like some, you know, long term play to build maybe the language model. But how do you think this all shapes out? If there are 2550 people making You know a i start ups for copywriting and twenty five fifty four images twenty five fifty four making you know. |
Characters and films right so many successful companies and that was my. Original plan with opening that sometimes we see only one big company come out but but i mean i do think it's like a huge technological transformation like we're saying i mean it's a case where. you could see why generative AI, large language models could be applied to a bunch of software as a service businesses. It's like, okay, maybe you do make Figma plus AI. It doesn't seem as crazy to say, okay, we're going to try and compete with all these really valuable incumbent businesses. At the same time, I think there's sort of this challenge of like, like notion or Quora, I think are both sort of unicorns, they're pretty far along, I was put them in sort of almost like last era, that are now trying to race into the generative AI space, so they don't get disrupted. So their venture firms are going to have all these sort of old portfolio companies that are trying to dive in. And so I think there's a really big question of just whether you know, whether sort of incumbents or sort of middle ground incumbents can can implement this technology or whether it reminds me of when cloud and mobile came out, there were some folks who could make the jump from cloud and mobile. | If you look at Yammer, Saksis company, they didn't make the jump when they were at Microsoft to mobile. and neither did hip chat. And then slack was mobile first, and they won the day. And then you look at, you know, mobile operating systems, you know, and the impact that had on productivity software, or cloud, and you have people running away with it, and then can other people catch up in time. And Microsoft Office is a fine mobile cloud operating system, but Google Docs, you know, has taken significant market share as well. So |
I'm curious what you think about this as an investor, if I'm allowed to ask a question. | Yeah, you can ask me questions anytime. |
I mean, so obviously software multiples have collapsed, right? But meanwhile, we're seeing these AI companies raise insane valuations and it's hard to even know what the fundamentals underpinning them are. Yeah. I mean, I don't know, how do we reconcile that? And also, like, do you think, I guess one theory of the world, independent of the technology is just there are all these funds with all this money. And they're eager for any story to be able to deploy capital, they're paid to deploy capital. We just saw it was a founders fund, I think they returned some money to investors, right? | So it's not even returned, because they hadn't drawn the money down. |
They said, just said, push it to the next fund or | Or Yeah, we'll just we'll make the size of this fund smaller, because the companies are not asking for more money. They're not asking for giant valuations. Therefore, we can be more efficient. So maybe some of their top LP said, You know what, we're doing so poorly. Do you think you might want to make this a little smaller, so we don't have to make as many commitments because our public portfolios and some of our other portfolios with you are so down? |
So that could have been a back and forth discussion. | My sense is they're they do well, but they have the all in strategy for whatever their top investment is. So it is super binary. I'm an LP and a couple of founder funds. Yeah. And so without speaking about it, you know, insider information, Brian Singerman has always said, you know, we just want to figure out what is our high conviction bet that we have in that fund and put like a large percentage of the fund into that, like I did with SpaceX. So I think they've been rewarded for, hey, make some bets, whichever one's the biggest, just plow a large percentage of the fund into that and then move on to the next fund. |
And they exit positions at the peak, whereas others like held on, I think, did sell some positions. | That's right. Yeah. |
So, but my question was just, this idea that investors are paid to deploy capital, they want an excuse to deploy capital. And this is a good one. Like, do you you see that as a persuasive? Like, do you think there's what I would say you have a fund? | Yeah, so it's you're getting close, you're close. And as a person who's outside as a journalist, you're actually keying into something. it's not that they're paid to deploy. And they need to put the money out there, they know they're going to find an investment, what they need is high quality investments that they think will return and allow them to raise their next fund. That's really what goes through everybody's minds. And I'm raising my fourth fund right now. And I'm doing it publicly. And I'm taking a year to do it because I want to kind of democratize venture capital a bit. And it has made me go back to launch fund one launch fund two, which were like on paper, five x funds, and I got to turn that paper returns into realized return. So I'm like, in that mode as an investor, now five x is extraordinary. That puts you in like very elite standings and but it's down from my Sequoia Scout performance. But I think now it's like really highlighted it for me. You know, I got to be really cutthroat about how I deploy capital. every bet matters, every follow on investment matters. Because things don't always go up into the right, right. And I think that's what's going through people's minds is, oh, man, if I deploy capital in 2021, and 2020, will I even get that money back? Will I be able to return one x? maybe two x right and stay in the game and get my next fund. Now, I think LPS are reasonable. They know there could be a vintage that performs better or worse by definition. So they'll they'll stick with people who have multiple funds. But yeah, people are looking for things to invest in. That doesn't mean they're going to make stupid bets, though. I think it's top of mind for people that entry price matters, right? Right. And so even though you're seeing all this like crazy stuff on the margins, last like three, four or five investments we made and we're seed fund, we're all at five to $15 million valuations, I think in 2021, they would have commanded two to five x that in terms of generative AI companies? Well, one of them was, but it was a previous founder who were just seeding, you know, with a kind of prototype, you know, hey, here's what we're thinking. And it's, you know, first money in, okay, figure it out. Go try and find product market fit. So those are high risk bets, but at lower amounts. And so I think that's the, the strategy people are going to deploy. And you'll see what you're saying. |
The one thing I'd point out is like 2021 was an environment where you could be a talented investor by seeing where the momentum was. People were momentum investors. And so you could play this valuation game. It's like, this is a company that's going to raise at a higher valuation. And with generative AI, there is a sense you can get into the hot deal. You can be pretty confident that there will be more money afterwards to market. | remember what Bill Gurley always says, and I think he quoted it from somewhere else, you can't eat IRR, right? You can't eat the statistic that we use the rate of return. So you have to actually get that return. So I think a lot of neophyte investors were excited to do momentum investing in private markets, but never realized, wait, I have to exit And there's no person to mark this up or sell my shares to in secondary. So therefore, what is this actually worth? And I think 2023 2024. These companies go out to market to raise and they raise that lower valuations. And then those vintages, they thought they were I had people who had invested in their funds, and they're like, Oh, we're at three x. And I'm like, wait, I just signed up. Like, yeah, we made four investments. And they're all up in six months. And I'm like, so your fund is up your three x on paper. in one year. Okay, that that's what a fund does overall. So let's see the exits, right, right. I mean, literally, if you were three x after a year, as you on your first fund, the intelligent thing to do would be to sell everything immediately, and lock in a 300% IRR, right, for your career and have a three x fund as your first fund, that would be the logical thing to do. Did anybody do that? |
Some people, I think they're like, homebrew, right? Did they sell out? You know, there are funds that I think that most people held on to their winners. | I did try to in 2021, you know, I didn't go out looking for secondary opportunities. But when secondary opportunities came in, I did take advantage of them. because I was like, why not lock in some wins here when we're up massively. And that was smart, because the first fund already returned its principal, you know, already passed that hurdle. And the second fund is the halfway there, or 60% of the way there. And that's fantastic, too. So that's really the big lesson that's going to happen is what's life like in a normal circumstance without the three years of craziness we saw right speaking of three years of craziness. The big news on Thursday shares of Silicon Valley Bank have plummeted more than 60%. Bank went from trading at a $16 billion market cap yesterday to a $6 billion market cap today. Ouch. For context, SVB claims that nearly half of all us venture backed tech and life science companies bank with them. I believe that to be true, actually. Anecdotally, I see that and on Wednesday, their CEO, Greg Becker wrote a letter to shareholders saying quote, while VC deployment has tracked our expectations, client cash burn has remained elevated and increase further in February resulting in lower deposits than forecasted. Okay, this is a bellwether quote. So what this means is VC deployment is tracking nicely. Okay, they expected that but the client means startups, cash burn remained elevated and increased in February, which results in lower deposits. So they have people's bank accounts. What they're saying is startups are still spending too much money. Right? that anecdotally, I also think is correct. VCs are going slow founders are still burning cash too fast. Your thoughts? |
I mean, it's the the SVB stock price is crazy. I mean, it really like the debates about whether we went through a.com type experience. Obviously, there are lots of differences. But yes, we'd be stock price is definitely one that makes you like do pretty shocking version, though. Yeah, hit max. It looks like Bitcoin. That's it. Yeah, exactly. I don't know. The market seems to know more than I do because that is a very sharp fall. I think there are questions about the value of their holdings. | Well, Reuters notes, just to that point that SVB sold 21 billion of its securities portfolio CNBC noted that mostly consisted of US Treasury bonds and the company estimated that the fire sale would result in a post tax loss of 1.8 billion essentially the bank is reworking its balance sheet and incurring a large loss from doing so to ups to offset that loss as we be announced a plan to raise a $2.25 billion round in a share sale, of which 500 million was already committed by General Atlantic, a venture firm, private equity firm, a full stage fund. |
And right before I came on the call, I saw TechCrunch had published a story saying some, you know, investors are advising their startups like whole money from SUV that obviously would, you know, run on the bank run would be the nightmare situation. So even if nothing is really fundamentally wrong, I don't know either way. But you know, people can get scared. And then that creates its own problems. | So if people were to remove their cash from Silicon Valley Bank, that could be a problem. Or if they were if they have a Silicon Valley Bank, debt facility, a wise thing to do would be to pull that down. So you have it maybe if you had the option. And, you know, this is something that I have had a problem with in early stage startups, which is early stage startups would raise 3 million, 5 million and add a million and a half in venture debt, and then they would just tack it on to their spend. And they would be like, Okay, well, I, I raised 5 million. Right now 30% of that is venture debt. So 5 million, I'm going to burn know, 400,000 a month. So that means I have a year of runway. And it's like, Nope, you have like nine, eight or nine months of runway. And now you're in debt for that last million and a half those last three or four those last four months. actually on the hook for and people started using venture debt, not for like building a factory or equipment, and paying it back over some reasonable amount of time, they were using it to fund runway normal operations. Yeah, that's not a good idea, especially if you don't have product market fit or a stable revenue stream coming in. And I think that's also a potential problem here. For people who gave venture debt to and Silicon Valley Bank wasn't the only one giving venture debt. |
I think the broader issue beyond Silicon Valley Bank is just that there are a lot of startups that raised hundreds of millions of dollars that haven't really felt the pain yet. We've seen lots of layoffs, but I still think the fallout for private companies is pretty slow. The public market reacts, you see it, the valuations fall, but we haven't seen sort of bankruptcies that you might, right. And so I still think that there's a lot of potential pain ahead of us. And just, and some of these companies, we just won't hear much about anymore. You know, I think there will be companies that raise hundreds of millions of dollars that just sort of fade from the headlines. I don't know, you just, is that too doom and gloom or? | Um, you know, if you, um, so to your point, Eric, um, is it too much doom and gloom? there are some companies that raise that large amount of money without product market fit. That is a challenge. That is a serious challenge. If they did have product market fit, and there's a there there, in other words, they have 50 million in revenue, 30 million in revenue, well, they could just lay people off until they get to break even or, you know, have infinite runway, and they'll figure it out over time. And that will lead to some hand wringing amongst VCs on the board, but not the risk of a zero. And so that is the question for a lot of these companies is, okay, if you invested in the company at a billion dollars, and they had, I don't know, 15 million in revenue, and you overpaid, let's say 10 million in revenue, so you paid 100x, you really should have paid 10x or 20x, it'd be 100, 200 million, $200 million company, 20x, let's say it's high growth. know, okay, then the company and the company's not growing. Now you got a problem because can it grow into the valuation or not? And how does it grow into the valuation? It just might be three, four or five years of what I'll call indigestion. To use a term, you know, like, just how do we get through this? Like, it's slogging, you know, like, you got to march through a swamp. And so hopefully, the people who are on those boards, and who made those bets are willing to march through a swamp for a year or two. Some of them might not even be there yet. I think some of the folks who are at some of these farms, you know, the TPG tigers of the world, I think some of them you know, left some of those firms. |
So then you have to retire if you made all your money in 2021. | Or if you think that fund can never return and get you carry, you might be like, okay, start a new firm. So I think some people did that some more quotes came in from the Silicon Valley Bank CEO, New York based venture firm USV this week, Unisquare Ventures, Fred Wilson sent an email to founders advising them. This is from the information who always likes to get credit or they dunk on me an internal is keeps his hardware. I know I always give them credit. And then they just try to dunk on me in public. I'm just gonna like quote the insider. Business Insider rehash of stolen re aggregation of this New York based venture firm, according to Business Insider, New York based venture fund, the information usv this week said that email to founders advise them to only keep minimal funds in cash accounts at SVB. that is funds up to 250 k SUV is in a severe cash crisis. The email read do not accept any offers from SVB to keep your money there. Even if they dangle 5% in front of you. It said, Oh, he was being noted had reached out to many of its portfolio companies earlier this year saying it had expected such a situation representative from declined comment. Whoa, that's pretty intense. Some vcs. So thoughts on Fred Wilson's position there. |
Yeah. I mean, obviously I take anything that he says extremely seriously. So if he's warning people about this, you know, it's like, uh, yeah, that's, that's risky. I mean, you know, SVB, uh, clearly has, like I said earlier, has the strong incentive to tell everybody, everything's, everything's okay. I don't want to be the one to, you know, I honestly, I have no idea. I mean, it's very hard to model out, you know, these banks are so complicated. | wasn't this what we went through? I'm getting shades of the great financial crisis where people didn't have enough reserves, or they're levered up. And this concept of a bank run and everybody trying to clear out their money. And we saw this with crypto as well. This is starting to give me flashbacks of that and maybe black swan ish kind of event do we expect know, well known well run banks to be insolvent or have bank runs. That's something I don't think we expected. And then that could result in the United States government having to come in, like they did in the great financial crisis and bail out Silicon Valley Bank. I mean, is it really that acute? |
Well, here it is on Yeah, do you think they'd really bail us out? I don't know. | I feel like after the last time, there's a lot of bad feelings because nobody on Wall Street went to jail. Right, right. |
that that was the kind of very skeptical Silicon Valley would get a bailout. I mean, I don't think so. | Okay, on the call, Becker told venture capitalists in Silicon Valley to stay calm. Call started coming in. Call started coming and started panic. He added that the bank has ample liquidity to support our clients with one exception. If everyone is telling each other SVB is in trouble, that would be a challenge. I would ask everyone to stay calm and support us just like that we supported you during the challenging times. Okay, great. So he's saying don't take all your money out on mass. And then just the fact that we're even having this conversation on this podcast, and Fred Wilson sent that email, and the information is breaking the story. And he's saying, please don't do this. That then creates self fulfilling prophecy, I'm afraid. |
As a bank, what you want is everybody to think you are the most reliable horse in the world. I mean, you know, SVB has always been a little older than other banks, where you know, it's, it's deeply embedded with the technology industry and, and sort of helps helps with some of the risk taking. | Okay. All right, everybody. This has been a great hour with our friend Eric newcomer. He has a newsletter newcomer.com go sign up for it. Highly recommend it. Let's get him to 3000 subs. Well done. Yeah. Let's get him to 3000 subs. And congratulations on your chief of staff. I remember you were looking for that. It's made life a little bit easier. Congratulations on- Thank you. Not having to write link bait articles. |
Thank you, you know, for all your early support. I remember when I was just like Harvard Eric, and I was a young employee at the information. Yes. Katie Benner and I on at one point I was on a couple episodes. | Yeah, you did great on the news roundtable. So I want to bring the news roundtable back a bit. So we can have, you know, I just like the problem with the news roundtable, if I'm being candid was the tenor in a lot of the publications became so link baiting. right. And so anti tech, or, you know, holding truth to power kind of, it became repetitively anti tech, as opposed to like, what I want to do on the show, which is be insider, sophisticated, explain to founders and capital allocators what's happening in the world, talk about startups, talk about positive things happening, but not like being deranged in our, you know, effusive, you know, love of tech. But just more intelligent than this person has too much money, they're too rich, this person, you know, this company behaves badly, you know, it's like, okay, yes, that's part of the story. Yes, wealth, creation and wealth disparity is a fine topic. It just can't be that the it can't be injected into every conversation about a new generative AI company. |
I agree that the media got too negative and crusady. And that there were a lot of founder takedowns. But now I'm at the phase where like, I'm over media criticism. Like that's sort of why I transitioned from dead cat to newcomer. It's like media criticism. Like, okay, it's good every once in a while to like talk about the media, but it gets exhausting. Let's talk about like completely exhausting and just like, I feel like working the ref, there's a reason my position is there's a reason basketball players get fined. If they talk about the refs, like it's sometimes the refs fault that people lose games and it sucks more than when the players make mistakes. that's the media. It's like, it's really frustrating when the refs are bad. But if you let people, if people just like get to blame everything on the refs all the time, it's just like a distraction from the conversation. | I think that's a good analysis. And you can't have refs who are in the bag and who are correct, which we've seen too. It's not doesn't happen too often. But I think this is where I think we're And I talked about this on the sort of uncomfortable rehash of dead cat when we try to make sense of all this with journalists, like I'm criticizing them, we're criticizing each other. And it's like, it was just a mess of a episode, but it's fine. It is messy. I think it's all collapsing. Yeah, to then be reformed. And part of it collapsing is new publications, like the information coming out and saying we're going subscription, you going subscription and being independent. Casey going independent, this new breed, I think it's part of the rebuild process. So there'll be entertainment. And sadly, the New York Times, and Business Insider are not that far off from each other in terms of they're going for clicks. And they're going for like a position. |
I don't always agree with your click prescription, but I don't want to fight that whole thing. | Well, whatever, I mean, you would agree that there's advocacy journalism at the New York Times. |
Sure, yeah, but the motivations for advocacy are totally different than clicks to me. Of course, yeah, I agree. I want the creator world and the journalism world to have to just sort of accept, to merge, you know what I mean? I like that. I think right now it's like, we have journalists, we're held to high standards, and then we have creators who are held to different standards. And I feel like it all needs to come together. Everybody is judged. based on their reputation. And yeah, I'm excited about that period. | Fantastic. All right. Listen, speaking of reputations, go back to work and get more scoops and bring them here on this week. |
Okay, everybody, we're live on the YouTube right now. With ask an angel. This is a series that I've been doing for years with my friend Zach colias. Who's that colias? He's a serial entrepreneur. He got into angel investing and early stage investing at the same time I did just about 10 years ago. Correct, Zach. Yeah, yeah. 2015. Spring 2015. He runs colias capital. That's his last name co e li us. You can follow him Zach colias on Twitter. And, you know, as far as investors go, I have a sign behind me that says do the work that signs there for me. Not for y'all. But if you benefit from it, I'm super happy. But people who do the work in our industry tend to gravitate towards each other. Zach and I have a great collaboration here because We both do the work. And man, it's a lot of work. What do I'm going to start with. Welcome back for your 17, 18, 19, 20, whatever. I stopped counting more than anybody now. | This Week in Startups is brought to you by Vanta. Compliance and security shouldn't be a deal breaker for startups to win new business. Vanta makes it easy for companies to get a SOC to report fast. Twist listeners can get $1,000 off for a limited time at Vanta.com slash twist. Coda Coda is the all-in-one doc for teams. If you've got a stack of niche workflow tools or you're buried in docs and spreadsheets, Coda is the doc that brings it all together. Startups can sign up for free at coda.io slash twist. And Contra. Contra is a commission-free marketplace for freelancers and independent creators. Get $500 off your first hire at Contra.com slash twist. |
just those three pie charts. How do you break it up today? Rough percentages? | Yeah. |
How many countries have you been to? How many continents have you been to? Are you keeping track? | I would add a fourth one, which is being a free, fun, individual enjoying life. So when I was a founder, my last company, we started in 2005 and ran that for over a decade. And It was nonstop. It was 24 hours a day. It was your entire life and soul and every ounce of your being was going into trying to make this work. And there was never a moment to be like, I'm not 100%. And I think one of my favorite things about being an investor is that there's a real 80-20 rule in this business, at least that I found in my experience, where 20% of my time provides 80% of the value. And the rest of it has this very fast depreciating curve. And so the best founders are people I know, or they come from people I know. And that's a really small slice of my time, but it's where all the value is. And so what I found really quickly in this job is that I can spend my time doing the work. And then there's all this other time that I could go enjoy life. And I was like, Oh my God, I'm going to do that. Because I spent a decade getting my head bashed in being a founder. And God, it's so good. And I'm just trying to constantly do that and keep that balance. I wouldn't say balance. It's not balance. It's more of just joy in my life. Got it. The opportunity to go explore the world. I'm trying to go to every country in the world. Oh, wow. And that's like, that takes time. And it's awesome. And it's like, super cool. And so like, stuff like that. |
And you remote work there? Yeah. | I haven't been to Antarctica yet. But I've been to 90 something countries. Wow. And in a good year, I'll get 10 new ones. You know, we'll see. Wow. |
That's, um, another great thing about it. Uh, the job has changed significantly. Everything used to be in the room to take a meeting and then founders would fly in to see you. So maybe you're obligated to take them to lunch because just doing a half hour meeting with them would be a jerk move. Uh, so now you're at three or four hours and basically it's the whole day. If somebody flies in to see her at least half the day and you still feel like a jerk for, yeah. only spending half a day with them if they flew in from New York or LA or whatever. So the zoom thing has changed everything. You can do a lot more meetings to be a lot more efficient and board meetings. I have a meeting today. But yeah, the board meetings going virtual has been a godsend as well. | Which is great. You can just shop anywhere, right? Like, yeah. |
So I'm... What do you attribute that fact to? So Zoom doing meetings on zoom as opposed to in person is as good or better than it was pre COVID. And people are sticking with that model. What do you attribute better selecting and better picking and more efficiency? What is causing the lift from moving to zoom instead of the room? | Oh, yeah. I mean, I don't sit on boards. Otherwise, it would really change a lot of parts of my business. But yeah, no, Zoom... I was really worried early on when we first started investing via Zoom in the beginning of COVID. I was like, Oh, how's this going to work? But so far, I mean, the performance of that portfolio has been very good. |
Like it's Yeah, my theory on this is, is that the in room stuff creates a lot of obligation, it creates a lot of reciprocation effect. Okay, we've been in the same room. So now there's like a relationship being built. Yeah. And then that can drive people to make decisions based on the vibe, the relationship, which founders know, yeah. And investors know, So investors really want to get in the room with a hot deal and try to build a relationship fabric. They want to go on a hike with you. They want to take to have dinner with you if it's a hot deal. Yeah, founders know this as well. That's why they want to get in the room with you or previously did because they want to use that time to build a relationship and have it be harder for you to say no, ultimately. Okay, great. Those are sales techniques. We get it person comes on the lot. They want you to spend a long time on the lot. And then the chance of you buying a car go up. Okay, this is just known. Yeah. So then if you move to zoom, and people become a little bit more dish dispassionate, a little bit more objective, in terms of picking their investor and picking the founder to back and like you're saying, you can see three times as many four times as many people on both sides of the table. What that means ultimately, as you find better matches for investors and companies and products, And then we have more time to do diligence, look at the numbers, talk to customers and do things that are less performative, less relationship building in the room. So then what's lost is relationship fabric being built for when things go wrong. So I have just instituted in our firm, since we're so good at ripping through tons of introductory meetings, and founders are so good at it now. Well, after we make the investment, we realized we haven't spent a lot of time with these founders in a room. So do we have a deep relationship fabric? We don't. And so now I'm like, okay, more zooms post investment, more, you know, breaking bread, having a meal. So I'm just starting to think about that a lot more. And I think people should so that when things get hard, you got that relationship fabric to fall back on. So it's, uh, it's, it's really interesting how things have changed. Listen, it's 2023, the macro picture is a little shaky, it's uneasy out there, and tech is getting hit super hard. As such, you cannot afford to lose sales for silly stuff like not having your SOC 2 right now. If you are unsure about your SOC 2, you need to check out Vanta. Vanta makes it incredibly easy to get and renew your SOC 2. On average, Vanta customers are SOC 2 compliant in just 2-4 weeks. Compare that to 3-5 months without Vanta, huh? And they partner with over two dozen audit firms who have been trained to file SOC 2 reports directly within Vanta. This is a total no-brainer. A bunch of my portfolio founders have used Vanta, and they've had amazing experiences. And if you don't have SOC 2 compliance, you can't close major customers. One major customer, that could be the difference between your startup thriving or going away. So get it done right now. Vanta's going to give you $1,000 off if you listen to this podcast. Think about it. $1,000 off vanta.com slash twist, you got to write that down. Put it in your notes v a n t a.com slash twist for $1,000 off your sock tube. So servicing new deals versus existing deals. Yeah, percentage of time. | Oh, I mean, I think one thing that's happening is that the founders are able, because they don't have to go in person to Sandhill, they can, they don't have to show up and run around San Francisco to meet with people in person, they can have more meetings. And as a result, they get to basically more rapidly kind of sort through who makes sense and who doesn't. And as an investor on the other side, we get to do the same thing. I get to see a lot of pitches and decide which ones I want to take. And I think the... So the volume of deal flow that I'm getting, I think is up. It's significantly up. And as someone who... For me, I really specialize in trying to find weird stuff. I like stuff that nobody else likes and that... And so the broader my aperture, the higher the opportunity of finding something that is really going to fit my style. And so that seems to be a big driver. The other thing is that I actually don't think that my in-person is substantially better than my zoom read on a person like so like think about a poker read like when i'm sitting with somebody in zoom and i'm sitting with somebody in person i don't think it's like order of magnitude difference i do think like phone call versus zoom big difference like a phone call versus like meeting in person big difference but zoom i'm it's not clear yet. But I think I'm pretty close. |
You have service providers like Carta, like AngelList. They've just taken all that back office and made it into a product. | Yeah. So I probably spend third no more probably 40 to 50% of my time looking at new stuff. And then I'm probably spending 30 to 40% of my time helping existing companies. And thankfully, the admin stuff is not too bad. It's all been abstracted now. |
They've done it before. Yeah. Explain why what the audit is for venture capitalists, why this is painful for us. And what the purpose of an audit of your portfolio is every year. | And I hired someone who's been amazing to help me with my audit work. Right. And oh god, we're doing the audit this year. And compared to last year, it's like night and day. She's a pro and it's like watching a pro at work. You're like, Damn, that's good. |
Fantastic. Yeah. And it's so it's an arduous process. And then you have to get in touch with every single founder, you've got to get all this information. And you know, it's important for founders to keep their investors up to date. And the audit is like the ultimate backstop of that we have no choice but to get information from you. When we ask you for that information, make our lives easier, please. All right, here are the questions. First question comes from Omar. Omar asks when reviewing an angel a syndicate startup investment deal. what should we consider as red flags? Okay, so when you're being invited to a syndicate, what are the red flags you should look for? Okay, now, if it's one of Zach's deals, and it goes out to his syndicate, or one of my deals at the syndicate calm, I'm no longer on Angeles, we do it ourselves. But Angeles is awesome. What are the red flags in deals? | Yeah. So I mean, I have LPs who give me their money to invest. And so every year we go through a process where we hire effectively an accounting firm to go through and look at all the different companies, all the positions in the portfolio, where are they marked? They basically they'll Google them all and they'll be like, Hey, this firm announced a fundraise and we haven't changed the mark. Why? Or this firm did this and that. So then we go through and we basically like, answer all their questions, provide all the supporting documentation, and effectively say that the portfolio is what we said it was, and that it's worth what we said it was, and that hopefully, there's no bad shit going on. And so the LPs use that to basically feel comfortable with the fact that we're doing our job and that when we call them for more capital, that they should give it to us. |
Um, but anyway, I have a simple rule with that, by the way, we get super inside baseball here, but that's why people are listening. I tell people, if you screw me like that, and I'm a point guard, and when I bring the ball up the court the next time, just be prepared, I may not pass it to you, I may pass it to your competitor. So if you want to play sharp elbow games, just be prepared that maybe I come up with the next Uber. And you know, it goes to your competitor. Totally. | people should look for? Red flags are tricky. Okay, explain. So one of the things that most investors on Angel List do is they'll go in and they'll look for deals that are being led by well known VC firms. So Sequoia, or Andreessen, or, you know, Greylock, or Benchmark is leading around, right. And so usually, if you were to be an LP in one of those funds, you'd be very excited to be an LP in one of those funds. And so being able to be invest alongside them is, you know, historically has been a very good deal. One red flag that we've seen over the last couple years, certainly since the last 18 months, is those companies that basically had been funded by a lot of fancy VC firms at incredibly high prices in 2020 and 2021, crazy prices, stupid prices, they started to run out of money. And so then the... And those deals were not that... The first deal, that was not available on AngelList. Those deals were sharp-elbowed. Everyone was fighting for allocation. And getting an allocation on AngelList only happened if you were already a significant insider in the company. And even then, you had to go to war. For instance, I'm in Mercury, the bank. I've been there since the beginning. And **** I've had to fight like crazy to get my allocations in the subsequent rounds. And I got, I got by some good friends who led, who led subsequent rounds, who literally were like, well, bummer. And they're like good friends. Oh yeah. Not friends anymore in my book. Yeah. Well, there were that, that, that definitely threw a big damper on our relationship from my side of things. |
Yeah. | I consider them personal friends still. They're my friends. I hang out with them. I see them on a regular basis, but the ball will not be passed their direction and it's going to go to other people. Oh, yeah. |
Yes. Dribble it off their foot into the stands. Okay. So that was a red flag. Now they're coming back to AngelList or syndication. | That's my job. My job is to basically just like you. It's like I'm bring the ball to my piece. And then when the time comes to pass it to people who are going to pass it back to me, Yes. Not people who are going to take it and hoard it. |
You're just going to put as much you know as much food on the buffet as possible and it's up to you to figure out if it's good or not you being the syndicate member. These are really important red flags for people to notice and over time people have learned know the difference one red flag, I'll point out is, you know, high valuations, and not a lot of traction, or, you know, a deal memo, and we really put a lot of care into our deal memos, but a lack of due diligence and a lack of data in the deal memo. So you got a high price, they want 25 million 35 million, but they don't actually have, I don't know, quarterly, monthly revenue spend, charts in there. Now the company's been around it, the product's been in market for six quarters, and you don't know the revenue per quarter, you don't know the growth rate, if that stuff's missing, then and they're talking about the product roadmap. And it's a high valuation, you have to ask, well, the people who have performance, will share their performance, the people who have a lack of performance will share roadmaps, plans, features, you know, events that they spoke at stories, you know, hires they've made press hits. Yeah. So I really like a focus on the business, and it becomes very clear. And you'll see it in when you get updates as well after you've invested if the updates include if if there's growth and revenue and customers being signed. Yeah, there's some badders credit for that. | Yeah. So now all of a sudden, these deals are suddenly getting bridge rounds because the VCs are trying to keep the companies alive. They're not doing well enough and they probably never will do well enough to raise at an up round. So we're getting flat rounds, we're getting bridge rounds, we're getting notes. So especially if you're seeing a note going into an existing company, that has a well-known VC who led a previous round, that means it's a bridge round. And suddenly, if it's suddenly a bridge round, a note, and a well-known VC is in the deal, they say, and it's basically happening with a note, that's a red flag. Because what that means is that they basically have said, oh, let's go get some dumb money from AngelList to keep this company alive so that maybe the company can get to a next up round, at which point we will basically go out and raise it, fund it ourselves, and we won't give it to Angelus. So there's two strategies that have worked well historically in Angelus as a lead. One strategy is the long-term greedy strategy, which is basically think about it like every deal you do is going to be on your permanent record, which is true. It's public and permanent, and you do a deal, and 10 years from now, people are going to be like, why did you do that stupid **** deal? Why did you do that stupid **** deal? And so that sets up your career as an investor to basically be, to use AngelList as a source of capital, but to be very careful about your record. The other strategy, which a bunch of people unfortunately have done, is effectively actively just a spray and pray do a ton of deals and get deal by deal carry because you don't care about the losers and the winners will pay you and just so who cares about who cares about your reputation or track record. |
First thing, check out our 20% month over month growth. Yes. And so founders are smart. So you just have to understand if they're selling performance. Yep. or promise? Well, what you're selling the promise, you know, you're, you've got to be careful to not have every single thing in your portfolio selling promise. And you got to have some things that are selling the performance. | It's at the top of the email. |
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So called logical decision making. You have to look at the field, the game on the field, as you're saying. and pick up make a plan and execute as well as you can against that plan. And that that does sometimes mean cutting the staff in half, retreating and extending the runway. So I literally got an email third riff from a startup, they finally got the message, you know, 10 5% 10% 20% riff, we should have just done a 40% riff at the start or whatever it was. And, you know, I think they're going to make it, they have, you know, 12 plus months of runway, and they've got a good plan. And I think they can get to break even with the money they have. But it was literally one year of having this discussion. And so they could have made these cuts at the beginning a little more severe and had 24 months of runway, but it is what it is sometimes founders going to take their time on the cuts. And, um, you know, some, some individuals do their best work when their back is up against the wall. Yeah. And that's just human nature. | I mean, so I think in today's market, I think there's a couple things going on. This happened to a number of my companies and we're working through it right now, which is like you raised, you got to a million in revenue, the business was doing really well. And then in 2021, some crazy VC firm came along and here's 20 on 100 posts. And everyone's like, woohoo, $20 million. Yay, we're gonna be able to do a lot of shit with that. And now, they're at a couple million in revenue, a few million in revenue, hopefully. But the valuation, the multiple that they're seeing in the market is not going to get them an up round. And so then the question then becomes, do you pivot just change your business entirely, which is dangerous. And in my last business, I did that a number of times. And it's a non-trivial thing to do. Do you take more product risk, which I'll come back to, or do you basically try to sell or shut down the business? And my argument for all these founders today is like, look, we seem to be at a step change with AI changing the game on the field in a substantial nonlinear way. So you can think of the last decade, the technology is improving over and over and over again, but we haven't had a major step change since mobile. AI appears to have done that. And And I mean, I like to argue that AI probably is the real web three. So the crypto fraudsters based like web three, web three. Oh, we all know that. But but AI appears to have totally changed the game. And so I think for a lot of those founders, this is the opportunity to take the capital that they have, and this new platform and make a bet on it and try to figure out how to basically get a step change in their business. And some of them will succeed and some will fail. So for instance, in my company, we had raised like a million bucks in 2008 from Reid Hoffman and the Google Analytics founders and all these amazing founders. And we had this business and literally Lehman happened and we were like, Oh, we're so And we saw this new technology at that point in time called real-time bidding, which is what we had just gotten started. And we were like, well, let's bet on this thing. If it works, like we'll survive. And if we're f***ed anyway, if it fails, because like our core business wasn't going to make it through. And so we we bet our entire business on this new protocol. And it worked. And that became a success. And I think AI gives a similar opportunity. |
it is a, it is something that builds your focus. I have to say, when I was doing this skiing, and they were like, you have to get more speed or you're going to be buried under the snow. And it was a whiteout condition. And my guide, when they got 10 feet past me, I couldn't see them. And I had to, they had to use a whistle, and I had to follow the whistle. And I was like, you know what, I'm going to just go faster. F it. And if I fall, I'm going to fall on powder. And literally, I, that's when it clicked for me that speed is your friend in the powder. Except for the one time when it was such whiteout conditions, I didn't see the fact that there was a giant kind of like mogul or just like the whole hill. And I hit a mogul, I kid you not, I went five, 10 feet in the air. I didn't see it. So I was completely unprepared for it. So now I'm good. You know, that thing when you're in the air and you realize I'm in the air, I'm not going to land on my skis. I'm going to land on my back. And I'm like, Oh, this is the end of my season moment. And I'm in the air on my back. And I land on my back. One of the skis pops off. And it was like landing in a pool. I just landed in a five foot bank of snow. And I was fine. Yeah. And I was like, Oh, wow, this is different. If you do fall. It's not a big deal. Listen, your mileage may vary. But the point is, sometimes you got to take a leap of faith, and you got to go for it. And I think the investors would rather that than you going in a circle. Yeah. Or going so slow down the mountain that you get lost and eaten by wolves. Okay. Yeah. From the YouTube live chat. Here we go. We're cooking with oil now. from a founder's perspective, what are the red flag personality types to be aware of when courting angel investors assuming the angel is relatively new? Okay, great. So what are red flags with investors? We see investor bad behavior all the time. What are some early red flags? I mean, sometimes we see it with co investors. Who are the people that you should avoid? | You know, in a poker tournament, like when I literally feel the best when I'm literally almost, yes. I'm like, I got nothing to lose now. I'm just going to start fucking jamming. |
So category one, the impatient folks. | I think there's two that I'm really scared of, having dealt with them myself a lot. One is the, I'm doing this angel investing thing to get rich. Folks, they tend to be very finance-oriented. They're going to talk a lot about valuations and portfolio construction and they're thinking about it like it's... They're on Wall Street and they're making bets. Unfortunately, those people get impatient very, very rapidly. Ah, yes. That's true. And this is a business where it takes forever and you have to be patient. And forcing things to happen doesn't work in this business. And those folks can become really painful to deal with if... Okay. |
Yeah, well, and you know, if you do have that outlook, you better have a get rich slowly, and get rich diversified with using the power law. Yeah. And so I think it's fine to have the aspiration to do well investing in this category. You know, that's kind of the point. Yeah, is that you could have outliers, but you better understand that it takes 25 investments, and you have to be graceful in failure. I have had a challenge with this in my early years. because it would be very frustrating to find out a founder shut the company down three months ago, and I've been trying to get updates from them for a year. And they're like, Oh, yeah, we shut the company down. And I'm like, what? Oh, three months ago? Yeah. What? Yeah. Even tell me. Yeah. No, you didn't even try to get a bridge round. Wow. Okay, interesting. This is the wild west folks. And so you just have to be prepared. And I don't know when you first experienced outright fraud, or malfeasance in your portfolio. I didn't experience it for the first 50 investments. But when you hit two or 300 Okay. Yeah. Somebody is going to do something. There are no slight, right. And I've had it happen once or twice. We'll find out in the second case. So you never know. Um, and it's really hard. Any other archetypes of investors to avoid? Yeah. And then how do I, how do I identify them? I'm not sure how to identify the finance bra who wants to get rich quick, but I would think the number of investments they have and their reputation with other investor, how long they've been doing it maybe. | They get rich. They think they're going to get rich doing this. That makes them impatient. |
Exactly. It is, uh, I'll give you one while you think of your next one. The investor who wants to run the company themselves. They have a lot of ideas. Yeah, is one and there is a kind of side archetype to this one where they want to send the management team on never ending research projects analytics. So they number one think they can run the company. So they're like, Hey, well, why don't we do this? Or you should do this? Or, you know, they're not asking things like have we considered know, white labeling the product. And what are your thoughts on that, which is how I learned to ask questions from Ruloff and Bill Gurley and other folks is like, Hey, let's have a conversation about let's pose it as a discussion as opposed to an edict. Even if you think it's the right thing to do. But man, I'm on some of these boards, and I'll see somebody come in and they haven't prepared, they don't have a prepared mind as Doug Leone and Michael Moritz talk about, you're having a prepared mind coming into this. If you don't have the prepared mind, and then you are sending the team on hey, can I get a report on all the clients by you know, their length and the churn and how many customers have it and it's like, Whoa, whoa, whoa, we have four clients, we could just talk about each of the four. Yeah, we do it right now. We don't need to make an extensive report. Okay, so that's an archetype for me. And the way I identify those early is they do they use non standard documents. And they argue over things that don't matter in those documents. So I try to be standard documents, standard documents, let's just use the standard documents. So we don't have downstream problems where investors are like, Oh, you did non standard documents. And even in our side letters, you know, we asked for very simple things. If we own over 5%, maybe we should have a board observer seat. If we over 10%, we should have the option to join the board. If you do choose to do board meetings at some point, and can we get updates, you know, really simple, like requests, and even putting them in there. is more to level set with the founder that, hey, we just think there should be governance when this company hits a million in revenue or something. And there should be some planning. So when you're in the product market phase, product discovery phase, maybe you don't need to have these things. But when you do get that to that 1 million, like you mentioned earlier, for startups, and maybe we should be thinking how the one turns into three, and the three turns into nine. And that might take more planning. | Yeah. I just, You should always do references on angel investors. It's trivial to do it. It won't take you more than a few minutes to send out some emails. You're going to know people in common with them. Do the work. If you're raising money from an investor and you haven't done references on them, you are f***ed up. Um, so, and you know, I've, I've had a couple of situations where there are people who I've worked with who just turned out to really suck and founders call me up and they're like, Hey, and I'm like, run for your life. |
There's a time for them, you know, if you get to series B or series C. No, there's never time for people. Okay, well, there might be a time for somebody with not the busybody ones, but somebody with deep domain expertise. Yeah. In finance. Sure. And you're thinking about doing a venture debt, and you don't have a CFO, and this person's an investor, and they got a lot of CFO experience, and you can put them on a mission to get four venture debt quotes. And yeah, you can like, use their mutant strength. Yeah, to not derail the management team, but to do work for the management team. And so that goes to how do you manage your investors. And so, you know, that's a really great thing to do is to tell people like, Hey, yeah, no, we were good on the product side, we the three features you came up with, they're actually on the roadmap. And two of them are low priority. We already talked to our customer, but the one you got there, yeah, that one is high priority. You'll probably see that in q2 of this year. You know what we could use your help on? We really need a CFO. Would you be willing to help us find a CFO and maybe do the first round of interviews with 10 of them for an hour each? And now all of a sudden that person's like, Oh, no, I just wanted to throw bombs into the management team to waste time and I put 50k into the company and now I'm creating 150k in costs. costs, like, don't be that person. It's hard enough to run these companies, you know, and if you are going to be that person, you better bring more value than the chaos you're causing. | Yeah, I was actually gonna... Busybody? I was the busybody micromanager. Usually, often, either a former or former manager at a corporate... Those are the worst. If they're a manager at a corporate, they're just used to... They're used to performative work and reports and decks and being the smartest person in the 10-person meeting because they know something about the business. Correct. And literally, the way I... What I say to my founders is like, If I do my job correctly, you don't need to call me because you don't need me because you're amazing. And I'm here to basically be helpful if you need an introduction or whatever when you're trying to raise money. But generally, like that means I picked a good entrepreneur and you shouldn't have me taking your time. So I should never ask you to do something that literally you think is a waste of time. And at the point that I ask you ever to do something that you think is a waste of time and it's a cost of the business, please tell me that. Yes. Please tell me, hey, this is why I think this is a cost, not a positive ad. And then I can tell you why I think it's going to help the business or not. But my job is not to put costs on entrepreneurs. My job is to stay the f*** out of the way and let them go execute and perform. And my job is to pick people who don't need me. But the corporate people, oh my gosh, they just like, they live in this, like, kabuki world. |
I mean. How can I be helpful is a meme. For a reason. Yeah. Some founders do need help. some founders do not. Some founders need you to just say, high five. That's awesome. Keep going, Travis. Yeah, good. Yeah, nothing to add. Uber's doing just fine. And if you do, you don't want to talk about something that's in my wheelhouse, let me know. And you know what, Travis would call me when there was a PR crisis, or there was the public didn't understand surge pricing, or something like that. And we would, you know, a handful of times have a really good talk about communicating surge pricing, to the public, you know, or, you know, Elon and I, we had a talk because I knew about affiliate programs. And I wasn't an investor in Tesla, but he, I helped him architect the referral, the referral program, if you remember for model three, and we just talked about it for I don't know, maybe an hour one time, just having dinner or something or flying somewhere. And we just had a hour long conversation about the strategy, but it was too successful, he had to turn it off. if you remember, people sold so many model three, somebody got two free cars, because you got $5,000 in credits. | Just don't be chaotic. Like you nailed it. It's like you got to win the question game with your investors. When they ask you a question, you got to ask them for help. You got to be like, and not help about their question, because they're going to run tangent on that. Be like, what's the thing that I can use this person for to actually move the business forward and put the onus back on them? And then they can they can their costs can be basically balanced by the value they add. And the posers, they will just run away very rapidly when you do that. |
That's a good program. We see at two successful is a good, good outcome. Literally two outcome. That's great. And so, you know, the these kind of discussions where you can be helpful, and it's in your wheelhouse is I think what you have to be self aware of as a potential investor, and then Yeah, you know, you have to manage these people. And I have a new technique. If I am not being helpful, and you don't want me as an investor, I am more than willing uh, to sell my shares in a company, you know, so if, if, if you don't want me around, I get it. Like, and I've literally had two instances in 350 where I said, you know, I think we philosophically differ here. Yeah. Uh, maybe I shouldn't be an investor anymore. And, you know, in one case it was because people were doing stuff that I didn't consider ethical. And I just wasn't comfortable, you know, just from a legal perspective. And I exited that investment. And then in one case, you know, they didn't want a founder didn't want to share with us the information that was driving the business. And I was like, Okay, that's odd. And this is normal information that you would share with people with this percentage ownership. And they, they just were like, we're not sharing any information. It was just a huge red flag for me. And I was like, this is a trust issue. Like if you don't trust me, we shouldn't be in business together. Just, and it was like a million dollar investment and we exited. So in these situations, I don't have you ever had that happen where you wrote off an investment, we just saw that with citizen in Sequoia, there was a FT story, where there's a cram down round, that's not too uncommon. But have you been in it where you have to separate from the founder? And how did you handle it? | Great. So that's a good deal. |
I mean, listen, people can disappoint you in all relationships. This is a business partnership, customer, employee, founders, management team, investors, service providers, people can disappoint each other. There's so much opportunity. My best advice is if it's not working out to just say, Hey, for the sake of just being professional, this isn't working out for me. I'm guessing it's probably not working out for you. Why don't we move on to this type of relationship, right? Listen, we all know hiring world class freelancers is a game changer for your startup. Or even if you're working in a big company, you want to have a great talent marketplace, we can find these people, but then you're always worried, Oh, my God, am I it's all my money going to go to commissions? Well, we found a new solution for you. It's called Contra c o n t r a. Contra is a commission free marketplace for freelancers and independent creators. That's right, commission free. And there's no percentage based upcharge when you hire somebody. How does that sound? Well, that's great. And if you're on the other side of the marketplace, let's say you're a laid off tech worker, you got a lot of experience, well, now's your chance, join Contra, and start getting freelance gigs that pay well, and don't have the marketplace taking the money that you're earning, you get 100% of what you make, no fees. What a fascinating way to disrupt the market. Contra specializes in design, engineering, social media, video writing, and AI. It really is the easiest way to get solid talent quickly. If you need project based work, you have to check out Contra. Listen, we have great success with freelancers. We're hiring them all the time. And Contra is the best way to do that. You're gonna get $500 off your first hire at Contra.com slash twist c o n t r a.com slash twist. Think about how much you can get done. with $500 worth of designer or developer time Contra comm slash twist right now go get that 500. Okay, from the live chat, Vicki asked what's a concept you thought was true early in your career, and that you followed and that you now think about differently you have a credo or an assumption a heuristic Zack that you believed early, but you've now changed your mind about or you've evolved on I don't know. It's a really good question. One thing that came to mind was, you know, that I could read founders like a poker player. And I really thought I could look into people's eyes and know if they're going to be a winner or not. And I do think I do that better than the average investor. But I think that I may have over indexed in my belief of my ability to do that, because so much of my deal flow came from my network. And my network was filled with so many amazing people. So my attribution was early on. Look at how great a picker I am. And it was like, Yeah, this is like, things that are floating around your immediate circle and your immediate circle. is well, you know, people I'm friends with, these are all, you know, high end entrepreneurs who are doing incredible stuff in the world and capital allocators, of course, it's gonna be like high end stuff, right? Yeah. So I, you know, Bob Dylan's like, wow, you know, I can pick people to sign for my record label who are really smart. It's like, well, just everybody's hanging out with Bob Dylan in the 70s and 80s. They're all in his orbit. So now, I have moved to let's look at what the customer has to say. in addition to what I think. So because and I know what I'm finding, frequently, the people I'm able to read people and how good they are at building a simple product that solves a problem in the world and being obsessed with customers. And then when I talk to customers, it's clear they're obsessed with them. And it's clear they're building stuff for them. Yeah, so here we go. Right? Yeah. Yeah. | Yes, I had abstracted, abstracted, you know, so I had one, um, where they, they were just doing a really poor job communicating. And, um, and I, I literally, you know, I called the founder up and I was like, look, just to let you know, I've asked multiple times for these things. You've chosen not to do them. I'm not asking for a lot. Um, and so like, I'm stepping back. They didn't have the money to buy me out, and I wouldn't have asked for them to. But I was like, look, I'm writing this to zero. And as far as I'm concerned, luck." Now, I subsequently actually just recently met the guy who went in and helped turn around that company. Now the company is doing great and there was a leadership change and they turned around everything. So I met the VC from the bigger VC firm who went in and did the work, helped him rebuild that business. And he was like, oh my god. And I was like, you did God's work, my friend. Thank you. Because it was bad. |
I'm learning a lot too. One of the recent learnings I had, so I'll rephrase this question, any recent learnings or, you know, in the last year or two. And one of the recent learnings I'm having is what a profound impact we can have on founders post investment. Uh, and I, I, I think I under index to this again, my own ego thinking I could pick people And that did work early in my career. But once we pick people, I've realized when we do a great job of teaching them how to do a board meeting, teaching them how to make a two year plan, teaching them how to think about customer acquisition, teaching them about accounting, silly stuff, or seemingly silly stuff. But founders don't know accounting necessarily. They haven't done accrual versus cash-based accounting. These are concepts that they may just not have run into yet. And so getting them focused on things that can build a stable, scalable business, I was like, yeah, everybody will figure that out. sometimes they figure it out and takes them a year. And we could have them figure it out in 10 days, with the help of a service provider with the help of another founder. And so that I underestimated, and maybe under indexed on as well. So I'm really thinking about supporting the founders post investment a bit more, and then identifying, hey, where, where is that? Where's the zone of excellence for this founder? And where are their blind spots? And so my ability to say this founder is so good at product, they're not good at hiring and, and finding, you know, people that'll level them up. Oh, this person is great at hiring incredible people and spending money. They're just not focused on the customer or whatever it is. Right. And that's something where every time we invest more in it, we see greater outcomes. So, you know, they, they get to their next round of funding. So I've just been thinking about that. And then also as your portfolio gets larger, identifying when the inflection point is, and that's something I'm really starting to study. And I have a new rule. It's 40 K a month in revenue. | You have any? Yeah, I've, you know, I've just been continually impressed with just how deep the learning curve is for this business. Capital allocating. There's just so much to learn and I'm learning new stuff every day. You're a decade in. Exactly, yeah. Not counting your entrepreneurial career. I know. I agree with you. I spent a lot of time helping companies raise money and advising and doing this work before I did this work. It's great. The self-actualization of learning and becoming better at the job is still very, very alive. I think if that ever went away, I would be probably sad and probably just immediately retire. But yeah, no, it's, it's really, I'm really enjoying it. It's really fun. |
Cause I, here's the thing. Can't be my mistake. Yeah. When you hit 500 K a rep five, 10, 15, 20 K. Yeah. You know, you could just get one customer. You could get a, whatever, you know, you get a little bit of traction. Maybe you're spending $2 to make one. You know, it's just in an early stage startup. It's a sign of life. | Okay. All right. That's when you, that's when my eyes go for you. Yeah. |
I don't think so. I think the bogey... What do you think the bogey is now to lock in a Series A? I mean... | Yeah. I don't like that. Yeah, not right now. Not these days. |
And it has a question. Would you recommend building the relationships with feces and angels months before deciding to build a product or company? How would you go about doing that? | 3x plus annual growth, you know, uh, over a million and there are, that's, I think that's skin, like when you start to, and, and not being in a crowded category, that's full of a bunch of actually having a viable path to being a big, there's all the things that are normal, but a lot of people seem to forget. Um, yeah. Okay. |
But the only way not to do it is to say, can I get your feedback on my ideas? Because if they're doing well, they're just like, we'll just go build something. And then let's talk about what you built. It's not my idea to help you come up with an idea this this ideation obsession. It's like, I feel like when you're in that ideation phase, that's up to you. Like, unless you have a great relationship with the person, you're at the poker table anyway. and you're or you're, you're kiteboarding, and you're, you know, drinking some coconut water on the beach, you got nothing to talk about. Anyway, you're like, I'm thinking about AI, I wonder if it would apply to sports in some way. And you could have a brainstorm there. But the activity is first, and this is second, you know, can I get coffee with you to go over my ideas is like really selfish. It with a busy person, it just shows that you're not considering what you talked about enjoying your life, maybe they have a family, maybe they've got obligations. People get busy when they're older. When you're young, you have time, not money. And when you're older, you have money and not time. And so you really have to... I know people who will just give people an angel investment to get them out of their hair. | So sure. Yeah. If you have a natural way to build relationships with VCs, natural meaning, you do the things that they enjoy doing. And you get to hang out with them, not in a professional, transactional setting, but in a... You kiteboard with them, you ski with them, you hike with them, you cook with them, you do yoga with them, whatever these things are. For sure. I mean, one of the best things that ever happened to me in my career in Silicon Valley was I started playing poker with the VCs when I just moved here. And all of a sudden, I'm hanging out with a bunch of VCs as a, you know, 25 year old kid just, you know, at their Sand Hill offices. And and God, it was so powerful. Like I got to learn by osmosis. I got to build a lot of long term lifetime relationships. These are still my good friends. That's yeah. If there's a way to do that, it's the superpower. You should you should watch into that. |
But if you're clever, intelligent, and maybe on the margins, you're a little spicy but not a jerk. Uh and you're that reply guy as they say. It could be a gal. Obviously, it could be a they them. It could be any gender you like but reply guy kinda rhymes a bit. Uh the reply guy uh archetype is a real thing, right? And there are some people who have built massive relationships just replying to people who are powerful. And Twitter uniquely allows you to do that. And so keep it intelligent. Keep it respectful. Don't be a jerk. But you can be spicy on the margins. That's fine. That'd be funny. Clever. I like I like clever and fascinating. Those are words. If somebody is clever and fascinating. Yeah. | One thing I want to add is Twitter. Oh my God, that's a great one. I've built a lot of relationships with people on Twitter, people who just engage in my comments and I engage in their comments. And we built a relationship over the years where now if they were to reach out and basically be like, hey, I'm starting a company, here's the deck. I would immediately read that because I've built respect for their thinking and the way that they engage and the way that they approach the world as a result of a natural organic Twitter interaction which leads to me prioritizing the way that I interact with them when they reach out with a pitch, as opposed to the dozens of cold emails I get every day. I mean, I literally go through and just really quickly. No, this is not my thing. Archive, archive, archive. |
Austin, I'll read. And he wound up getting Austin a USTN. He was like a reply guy. So go look at his replies from the early days. All he did was like, when he was building his businesses, reply, reply, reply. Um, and I think that's, and he's got a, I'm looking at it right now. He's got a quarter million followers. So that's a, that's a thing. That's a thing. All right. X auntie asks how hard, Oh wait, there's one more from Bob G. Bob G. startups. Oh gee, Bob G is back. What startups that you invested in face the most difficult early challenges? What did you personally learn from it? Wow. Okay. Good. Zach, you got a, | insightful, you know, often insightful. Great. If you basically like you somebody is talking about something, there's a thread going on about something. And then you're like, Oh, what about this? Here's another way to think about it. Here's a link to something interesting. You're adding to the conversation. Like, you know, I when when people do that, to me, I enjoy reading those things being like, Oh, that's a cool way to change my thinking. |
It's a very astute observation. He's built some of the most legendary companies in the history of commerce. And now he has to do a turnaround. Oh, my God, a company that's at scale. And yeah, maybe a certain percentage of the people there hate capitalism. Yeah. And profits. Yeah. And we're working for a living and working. Yeah. And doing work or coming to an office and I mean, it is crazy when you think about it, like a lot of companies got hijacked by the employee base, Google, probably the number one example where, you know, they just all of a sudden the company became a miserable place to work and the people who are running the place and, you know, the, you know, defining the culture are the people who Larry and Sergei would least like to have dinner with or go kiteboarding with or have coffee with. And it's like, how did that happen? You know, and it's like, they need to go in there literally. And, you know, and Sergei's back in town, according to many reports hanging out. I don't know if Larry's going to come back, but they need to just start firing people who are not there to do work like Zuckerberg is. It has to be the people who want to manage work or, you know, have theatrically do work. take credit for workers work. They're going to have to rethink that. And that might mean letting go of people who have some amount of notability or notoriety, whatever it is inside the organization, but you know, when you look at what they're actually doing the output, that's the problem. And I'm pretty happy with myself that I've built organizations, you know, the small ones that I operate, where everybody's actually doing work, not just sitting around taking credit for everybody else's. I will do a last question here, I think, because we are in meta. But did you see metas doing thousands more layoffs in their efficiency thing? I'm like, Whoa, I bought that stock at $94 trading job. It's like, Whoa, I don't even know what it's trading. And I wonder what meta is trading. And let me look it up here. Meta stock. I mean, when are they gonna change? You're an addict. I'm not. Oh, 181. Whoa, I literally pretty close to doubling my money here. Whoa. What a crazy trade that was. All right. Good job. Good job. Okay, here we go. How hard do you negotiate on terms during your early stage deals? Is your preference to fund on a fairly standard safe rather than an equity round with lots of terms? Of course, we want to do standard terms. So let's just go to the first part of the questions from ex ante. How hard do you negotiate on terms? | I mean, there's a myriad, right? Startups is a rocket ship right into the walls of your own personal incompetence. And so whether you're literally Elon or the youngest, freshest entrepreneur on the streets, you go into the market. And when you're Elon, day one, it's a multi-billion dollar business. and you hire a thousand of the best people in the world. But because your competence is so high, your bar is so high, you crush, but you will immediately hit your limitations and you will just get your face ripped off. And it will just be a continual process of getting your face ripped off, stitching yourself back together, solving the problem, hopefully repeat over and over and over again. And it doesn't matter where you are in the life cycle as an entrepreneur. And so, honestly, every company that I've interacted with, from start to finish. It's just a never ending series of challenges. And the question is just like, can they work through them? And, you know, are they good at figuring out who's the right person to ask for help? How do I solve this problem? And then rinse, repeat, rinse, repeat, rinse, repeat. I mean, look at look at look at Elon over at Twitter. You have personal experience with that. I mean, God, the guy just his level of incompetence is way higher than any of us. But he literally just jumped into the shark pit and said, let's go crazy. |
Yeah, my I have an exact the exact same philosophy. If you are asking us to make an offer, we will ask you two or three times, what what is your target valuation is the way I like to phrase it. They're like, Well, we want you to tell us and I'm like, Well, what would be a valuation you think is fair? And they're like, Well, we want the market to tell us and I'm like, Okay, what would be a valuation minimum that you would accept? Literally, I've got like seven ways to ask this. Yeah, if an investor is asking you to come up with a valuation, I suggest you just come up with one that you think is fair. If you want that investor, because then you move the conversation along. If you're over optimizing on valuation in a market like this, my Lord, what are you doing? I could understand that technique. If you don't need money in 2021. And you're trying to see if somebody will do some stupid valuation at a FOMO. Sure, you know? Oh, you want to invest in stripe? Yeah, our last round was 50 billion. We don't need money, but you're free to give a term sheet. And I have a fiduciary responsibility review it with my board. could take that approach. And I'm sure they did. And I'm sure people lobbed in term sheets that were absurd, and, you know, fascinating. But in the early stage, Well, what how much money do you need to make it to the next level? And how much dilution do you want? So okay, you need $3 million. Okay, you want to dilute no more than 20%. Okay, so you got a $15 million valuation, a $20 million valuation, somewhere in that range. And then you just test it with the market. And if you're happy with that valuation, and you think it's reasonable, but then both sides of the table can feel like they, you know, did a reasonable transaction, and you can get back to work. you're optimizing for that extra 5 million, the most talented investors will say, Okay, you know what, maybe I'll invest in the next round. So let me know. And then you get some sucker at the table, who's trying to, and we talked about it before, maybe you're getting, you know, the finance guy, or the, you know, send you on a wild goose chase mission. Gal, who, you know, you don't want as investors. Yeah, now you just added somebody to the cap table, because you're optimizing for | I kind of live by the Warren Buffett school. I try to live by the Warren Buffett school for everything. That guy's just like, he literally just he, he said so many examples. I'm just like, refollow the book. Um, they set a price, I take it or leave it. And that's it. I'm not I'm not negotiating. It's like, like, you can give me the price and I will say yes to it. I'll say no to it. Will you tell them that you're passing based on valuation? Yeah, yeah, of course. Yeah. Yeah, me too. And then they're like, they're like, Whoa, and I'm like, at that point, like, that we did we didn't come together in the right way. And thankfully, that doesn't seem to happen too often. Usually it's like if I want to do the deal, I think the price is fair. You know, then then then I'll say yes. And then if I'm setting the price, you know, let's say they really don't want to set the price. You know. I come up with a fair number and I'm like, this is my number. And I'm not negotiating because this is a number. And yeah, now there are situations where it becomes competitive. And that gets a little more dicey. And they're just like, I come up with a number that I want to pay and pay it or I lose the deal. But it's not about it's not about negotiating oftentimes. |
Yeah, it's kind of weird. It would be like going to like a great restaurant, and they're like, trying to get you to buy. It's like that guy who Uh drop salt down his dirty arm and then expect you to eat a gold steak for a thousand dollars It's like that's not the steakhouse. I want to go to by the way, that guy's brilliant though. I mean, he's brilliant You're an idiot if you pay a thousand dollars for a mistake from him Because you could go to an incredible Yeah, they're suckers born every day. But like i'm not going there To see you in sunglasses in a dirty white t-shirt Drop salt down your greasy sweaty arm onto my steak and I don't want gold leaf on the steak salt bay It's the dumbest thing I've ever seen. Come on. It's brilliant. Brilliant. But that's insert do me a favor insert Zach doing salt bae like a meme of it right here. It's just not what I'm interested in. Yeah, that's the equivalent of like, optimizing for your valuation. You look like an idiot, right? Or me trying to grind you down on valuation. You know, if you ask me what the valuation is, I'm like, well, public comp is four times revenue. Yeah, you're a private company growing faster. So eight times revenue, 10 times revenue, whatever, whatever you think is fair. And you can get to this range pretty quickly. So don't over optimize is the broad based answer. It's an amazing job. Let's let everybody know if you want to get in touch with Zack and you got a great idea. Best way to do that is to get into his network, meet some of his founders or co investors and get an intro. But you could always be reply gal or guy, may them, if you're non-binary, and just reply to him. | valuation, and it's a red flag for me. Like, in fact, the point that the entrepreneur is more focused on the valuation than our relationship and the business that that's going to be built there. That for me is like, probably not a deal I want to do. |
I'm trying to evolve here and make sure I get it right. I like y'all. I just use y'all. When I come to meetings, I'm like, y'all got to work harder. I just build girly it. Y'all are not hitting the standard that we need to hit at this company. Y'all need to work harder. I just go with you. And I like typing it. I like a Y, apostrophe, A-L-L, y'all. It just rolls off the tongue. | We really need to come up with a gender neutral reply guy. No, no, no, no. A gender neutral singular. Like, so we have he, she, and we just need a, because they is plural. Like, it's a plural word. |
Do you guys want to wrap the show with Salt Bae decorating a $150 burger at his restaurant? | It's not gender specific. Howdy, y'all. Howdy, y'all. Howdy, y'all. |
And the gold leaf is stupid. Oh, you're a hater. You're a hater. No, I'm not a hater. It doesn't add to the food. If you want- Of course it doesn't add to the food. If this shows a disrespect for cuisine. The, yeah, it's just garbage. This is someone recreating it for the Big Mac. Oh, he just, he's putting gold leaf on a whopper. This is genius. So the gold leaf on the whopper. Oh, this is so great. And then he's going to squeeze it. No, you know what? I went to Shake Shack yesterday. Burgers, 12 bucks. double double, maybe 13 bucks. I don't know. I tipped 14. I mean, not even I mean, I was like, whoa, 14 bucks. And I was like, you know what? Worth it was delicious. Guarantee that truffle burger I had at Shake Shack is better than that monstrosity covered in gold leaf. Just what you put on a burger. What you're telling me is the burgers not good enough. | Respect the game. The man's got game. I mean, maybe he's a performer. |
You too. Uh and uh just follow Zach Colius. Interact with him. Go hella skiing with him. | It's all up to me. |
Like, so, yeah, that's like, that's a good way to get to know people. Tell Jed York I said hi. | It was funny that we were housekeeping with one of the owners of one of the football teams, some of the NFL teams. And I didn't even know until like halfway through someone was like, oh, that guy owns this football team. I was like, oh, that's pretty cool. He's actually a really cool guy. |
I mean, I don't want to make this a horror. I don't want you to call this one startups HR, but you look great. Oh, thank you. | Actually, it's a good picture for it. It like it's like that. So handsome. |
We're all pins and needles here. | So yeah, great. You know, they use a special facial mister. And I have to add that to my Yeah, yeah. You have a mister. Well, one of my companies. This is a miss for mister. Mr. No, no, it's way better than that. So basically they use it in our gender. Mr. No, come on now No, so basically it turns out if you're gonna add Chemicals to your face. They have to get to the pores of your skin and your skin is actually very thick and it doesn't like things to Go into your face. All right, and so if you want to look young and healthy and basically, you know, you want to be a You want to be beautiful. Um, you've got to basically use nanoparticles to basically add nanoparticles, nanoparticles. Yeah. What's the name of this startup? |
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